Transaction: Definition, Function, and Example

What Is a Transaction Deposit?

A transaction deposit is a deposit made to a transaction account, such as a checking account. These deposits are immediately accessible without delays, waiting periods, or penalties. Banks may impose restrictions on certain deposits, such as large deposits placed on hold. Transaction deposits differ from non-transaction deposits, which mature over time.

Key Takeaways

• A transaction deposit is made to a transaction account, like a checking account.
• Transaction deposits are liquid and can be accessed instantly.
• Deposits can be made at a bank, ATM, or through electronic transfers.
• Banks may restrict or delay certain deposits, like large checks.
• Non-transaction deposits require notice or have waiting periods.

How Transaction Deposits Work

Transaction deposits are made directly into transaction accounts. Also known as demand deposits, they allow easy access to funds without prior notice. Deposits can be made in person, through ATMs, or via transfers. Direct deposits also qualify as transaction deposits. Account holders can access their funds through various methods, such as in-branch withdrawals, ATM withdrawals, transfers, check-writing, bill payments, wire payments, and ACH transfers.

Transaction deposits provide individuals with the flexibility to meet their banking needs without limitations, unless specified in the account agreement or terms and conditions.

Special Considerations

For an account to be considered a transaction account, it must allow unrestricted transfers, withdrawals, and debit transactions within a seven-day period. The account must have no maturity date or eligibility requirements.

Some banks may place temporary holds on large or unusual deposits for verification purposes. This may also apply to new accounts. Once the hold period ends, the funds become fully accessible. Savings accounts that offer unlimited access are also considered transaction accounts.

Transaction Deposits vs. Non-Transaction Deposits

Transaction deposits are the opposite of non-transaction deposits, such as savings accounts, money market accounts (MMAs), and certificates of deposit (CDs). Non-transaction deposits are less liquid and may have limitations on fund access. CDs require investors to lock up their money for a specified period, while some banks restrict the number of debit transactions or withdrawals from savings or MMAs. Non-transaction deposits may also be referred to as time deposits or term deposits.

Example of Transaction Deposits

Funds in a checking account are examples of transaction deposits because they can be easily used for daily expenses or withdrawn from the account. In contrast, time-based deposits like CDs cannot be accessed on demand.

What Conditions Must an Account Meet to Be Considered a Transaction Account?

According to the Federal Reserve, transaction or demand deposit accounts must allow unrestricted withdrawals and transfers on demand within a seven-day period. They must also have no maturity period or eligibility requirements.

What Is the Difference Between a Transaction and Non-Transaction Deposit?

Transaction deposits are made to transaction accounts, providing easy and unrestricted access to funds. Non-transaction accounts, on the other hand, may have limitations on withdrawals, such as a limited number per month for savings accounts.

What Is a Time Deposit?

A time deposit is a deposit made to a non-transaction account. This type of account generally accrues interest and has a maturity date. Withdrawals from time deposits may be restricted. Some savings accounts and CDs fall under the category of non-transaction accounts.